Vandre Oil Company, which prepares financial statements on a calendar-year basis, purchased new drilling equipment on July

Question:

Vandre Oil Company, which prepares financial statements on a calendar-year basis, purchased new drilling equipment on July 1, 2012, using check numbers 1035 and 1036. The check totals are shown here, along with a breakdown of the charges.

1035 (Payee—Oil Equipment, Inc.):

Cost of drilling equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $150,000

Cost of cement platform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000

Installation charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,000

Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $226,000

1036 (Payee—Red Ball Freight):

Freight costs for drilling equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,000

Assume that the estimated life of the drilling equipment is 10 years and its salvage value is $7,000.

1. Record the disbursements on July 1, 2012, assuming that no entry had been recorded for the drilling equipment.

2. Disregarding the information given about the two checks, assume that the drilling equipment was recorded at a total cost of $195,000. Calculate the depreciation expense for 2012 using the straight-line method.

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...